New York Times staffers Gretchen Morgenson and Louise Story have two incredibly well-researched and written stories, “S.E.C. Accuses Goldman of Fraud in Housing Deal” and “Investor Who Made Billions Is Not Target of Suit” about the US Securities and Exchange Commission’s (SEC) civil lawsuit alleging fraud against Goldman Sachs and John A. Paulson, the hedge fund manager who got Goldman to put the deal together. Paulson paid Goldman Sachs US$15 million to basically build and sell a barrel stocked with fish handpicked by Paulson which Paulson could then shoot. Goldman would then sell the rancid eelpout in the fish market to institutional investors—telling them it was bluefin tuna (with the help of the credit rating agencies)—without telling the investors about Paulson and his gun.
What I don’t understand—and I wish Morgenson and Story would explain—is why Paulson, Manifold Capital (nee ACA Management; the firm Goldman told investors was running the show), and all the credit rating agencies aren’t also defendants in the Goldman fraud lawsuit. And how long before the criminal lawsuit shoe drops.
Paulson did a smacking good job of picking losers to bet against. Morgenson and Story report “... 99 percent of [mortgage bonds underlying Abacus] were downgraded. ... By the end of 2007, Mr. Paulson’s credit hedge fund was up 590 percent.” Paulson shot almost US$6 billion worth of fish in the barrel he paid US$15 million to Goldman to construct and sell.
What’s especially interesting about these articles is that the New York Times editors allowed Morgenson and Story to use terms like “bet” and “wager.” It’s accurate and it’s about time. I can’t wait until Oliver Stone gets wind of this; Paulson makes Gordon Geckko look like a piker.
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